INVESTMENT WATCH: China’s Black Swan Has Arrived

Published by Investment Watch | September 20, 2021

How serious is this? Serious.

The issue at hand is China’s massive Evergrande property developer. The company is effectively insolvent, with over $300 billion in bad loans. Many are calling this “China’s Lehman Moment.”

The company’s stock is down 80% Year to Date.

Real estate comprises nearly 8% of China’s economy. Construction is another ~8%. So, all in all, you’re looking at 16% of the second largest economy in the world experiencing the bankruptcy of one of its largest players. This has significant implications for everything from commodities (used in construction) to finance (the loans used to build the buildings and finance the mortgages for consumers).

And in these types of situations, there is never just one player at risk.

Contagion has already begun. Hong Kong property developers and Chinese industrial producers are getting hit. And if you think this will be confined to China you are mistaken.

Australia supplies much of the commodities China uses for its construction. It is not coincidence that BHP Group (BHP) and other major Australian miners are nosediving, crashing 26% in the last few weeks.

And then there’s European banks, which have massive exposure to China.

This is the problem with an Everything Bubble: you never know where the black swan is going to come from.

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